How one newspaper company can save itself by giving away free iPads and becoming the 'Netflix of news'

As print media companies' revenues
continue to decline, one analyst says they should switch from
hard copy to hardware.

In a note to clients, Matthew Brooks of Macquarie Research said
print media companies — such as Tribune Publishing —
could be better served in the future by selling off their
printing presses and buying their newspaper subscribers tablets
instead.

Think of it as a "Netflix of news" model.

And these companies might be
able to recognize instant savings as a result.

Brooks thinks the digital shift and tablet offer could
increase the subscriber base for the company, with these
subscribers paying a low, flat fee that would still be profitable
for Tribune.

Brooks suggested that a partnership between Tribune and one of
the three tablet makers could become a new revenue stream for the
newspaper company.

"Discounting at 10% saves Tribune Publishing $1.1bn over three
years if it doesn't print papers," Brooks wrote.

"This would allow Tribune to give away a mobile worth ~$350
retail to all 3.1 million print subscribers. At retail, that
could buy an Apple iPad Mini, Google Nexus or Amazon Fire tablet,
which would help ease the pain of losing their paper."

Tribune Publishing's media groups include the Los Angeles Times,
the Chicago Tribune, the Sun Sentinel, the Orlando Sentinel, The
Baltimore Sun, and the Hartford Courant.

The issue is that print ad revenue, the lifeblood of the print
medium,
is declining, and creating the hard copy is an expensive
process. In fact, Tribune Publishing, which owns dozens of
newspapers, spent $140 million just on newsprint and ink in 2014,
according to Brooks.

Macquarie Capital

All told, Brooks projects that if Tribune Publishing goes from
the current model to the "Netflix of news" model, the company
will dramatically reduce revenue but that it will be more than
offset by the increase in its earnings.

"Given these cost cuts and forecast revenues, our estimated 2019
EBITDA estimate is over 70% higher than under our base case,"
Brooks said. "This is due to the higher assumed margins for a
digital news platform — we think margins in print are held down
by the 'ball and chain' that is the printing press."

Part of the cost savings will come from lower employee costs
related to print production, but Brooks said those jobs would
probably be lost anyway as the print product declines on its
current course.

Brooks concludes that this sort of dramatic move is an opening
for any newspaper company — one just has to seize it.

"As yet there is no digital company that dominates the news
category in the same way as Amazon in retail, Netflix in video,
and Google in search," he said. "We therefore see an opportunity
for newspapers to invest with a view of becoming the Netflix of
News."